Edited version of private ruling

Authorisation Number: 1011592113537

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Ruling

Subject: GST and grants in cash and in kind

Question

What are the GST implications of your cash and in kind contributions to entity A?

Answer

There are no GST implications in respect of your cash and in kind contributions.

Relevant facts and circumstances

Entity A has been granted funds by entity B to undertake a specified project (the project).

The project is a collaborative project between a number of entities (the partners). This is different to contract work.

Entity A is managing the project and has entered into a funding contract with entity B. You are not a party to that agreement.

You are one of the partners. You and the other partners have entered into an agreement (the agreement) with entity A.

The terms of the agreement are dictated by entity B under the funding contract and are mandatory before entity A can expend the funding from entity B.

According to the agreement, entity A will provide contributions and will administer the funds received from entity B and the partners in accordance with the funding contract.

As a partner, you have agreed to collaborate in order to carry out and complete the project in accordance with your commitments.

Your obligations are set out in the agreement. According to the agreement, you are committed to provide cash and in kind contributions.

Under the agreement, each partner will appoint an appropriate person to act for them and manage the project on their behalf.

Entity A will appoint certain people who will conduct the project. These people and the persons appointed by the partners will manage the project.

Progress reports detailing the progress of the project are required to be supplied to entity B. Each partner will provide the information requested by entity A to enable entity A to prepare the progress reports. The progress reports will be provided to the partners prior to the submission to entity B.

All project intellectual property will vest in entity A upon creation and will be its sole property.

Entity A will grant each partner certain intellectual property rights.

A party to the agreement may publish material relating to the project provided all material sought to be published is submitted for approval to the other parties.

All publications by any party must acknowledge the support of all parties.

The outcomes of the project are expected to be communicated to the community.

The relationship between you and the other parties does not constitute an agency or a partnership.

Property in any plant, equipment, materials and other supplies purchased or otherwise acquired or constructed by entity A through the funds received from entity B and other partners will vest in entity A.

You are registered for GST.

Summary

Based on the information provided, the cash and in kind contributions that you provide to entity A are not consideration for a supply or a supply for consideration. Therefore, there are no GST implications in respect of your contributions.

Detailed reasoning

Under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you are entitled to the input tax credit for any creditable acquisitions that you make.

An acquisition is a creditable acquisition if it meets all the requirements of section 11-5 of the GST Act. This section states:

You make a creditable acquisition if:

· you acquire anything solely or partly for a *creditable purpose; and

· the supply of the thing to you is a *taxable supply; and

· you provide, or are liable to provide, *consideration for the supply; and

· you are *registered, or *required to be registered.

(* denotes a term defined in section 195-1 of the GST Act)

One of the requirements of section 11-5 of the GST Act is that the supply of the thing to you is a taxable supply (paragraph 11-5(b) of the GST Act).

Section 9-5 of the GST Act states:

You make a taxable supply if:

· you make the supply for *consideration; and

· the supply is made in the course or furtherance of an *enterprise that you *carry on; and

· the supply is *connected with Australia; and

· you are *registered, or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

Whether a supply made to you is a taxable supply depends on the circumstances of the supplier, in your case, entity A.

Paragraph 9-5(a) of the GST Act will be satisfied if entity A makes a 'supply for consideration'.

There are three questions that are relevant when determining whether there is a supply for consideration. These are:

· is there a supply

· is there consideration, and

· does the necessary relationship exist between the supply and consideration?

Supply is defined in section 9-10 of the GST Act and is intended to encompass supplies as widely as possible. Subsections 9-10(1) and 9-10(2) of the GST Act state:

A supply is any form of supply whatsoever.

Without limiting subsection (1), supply include any of these:

· a supply of goods;

· a supply of services;

· a provision of advice or information;

· a grant, assignment or surrender of *real property;

· a creation, grant, transfer, assignment or surrender of any right;

· a *financial supply;

· an entry into, or release from, an obligation:

· to do anything; or

· to refrain from an act; or

· to tolerate an act or situation;

· any combination of any 2 or more of the matters referred to in paragraphs (a) to (g).

'Consideration' is defined under subsection 9-15(1) of the GST Act to include:

· any payment, or any act or forbearance, in connection with a supply of anything; and

· any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

The references in the GST Act to 'supply for consideration' and more commonly to 'consideration for a supply' (for example, in paragraph 11-5(c)) underscore the close coupling between the supply and the consideration that is necessary before a payment will be consideration for a supply that will make the supply subject to GST.

Accordingly, in determining whether consideration is in connection with, in response to, or for the inducement of a supply, regard needs to be had to the true character of the transaction. An arrangement between parties will be characterised not merely by the description which parties give to the arrangement, but by looking at all of the agreements entered into and the circumstances in which the agreements are made.

In your case, entity A may be making a supply to you by entering into an obligation to conduct the project and the cash and in kind contributions may represent consideration for this supply.

However, even if this was a true characterisation of the agreement, the obligation would need to be binding on the parties to establish a supply of obligations. Goods and Services Tax Ruling GSTR 2000/11 is about grants of financial assistance. At paragraph 33 the ruling states:

For there to be a supply of rights or obligations, such rights or obligations must be binding on the parties. The creation of expectations among the parties does not establish a supply. An agreement that does not bind the parties in some way would not be sufficient to establish a supply by one party to the other unless there is something else, such as goods or some other benefit, passing between the parties.

The agreement is not one that binds entity A such that it is compelled to do certain things or repay or return the contributions in specified circumstances. Rather it is an accord under which the parties agree and acknowledge the role and contributions to the project that they will make.

Whilst the agreement sets out the role and contributions of the parties in the conduct of the project, essentially entity A is not making a supply of rights or obligations which are binding on the parties for the following reasons:

The project is carried out by entity A under the terms of the funding contract with entity B. You, as a partner, are not a party to that arrangement and your role is to support the project with cash and in kind contributions for the benefit of the community.

The entry into and the essential terms of the agreement are dictated by entity B under the funding contract and are mandatory before entity A can expend the funding from entity B.

The agreement is not for entity A to carry out any work on your behalf. The outcomes of the project are not specific to the partners but are generally intended to be of broader industry or community benefit.

The project is not intended to be an arrangement through which entity B subsidises certain type of work for the partners.

The role of the partners is more appropriately described as that of a sponsor or collaborator which is prepared to support entity A by providing cash and in kind contributions.

The granting of the intellectual property rights and the acquisition of new knowledge in the course of the project is incidental to the purpose of the agreement. As such, there is insufficient nexus between these supplies and any consideration as represented by the contributions.

Based on the information provided we consider that there is no supply by entity A for which your contributions are the consideration. Therefore, the requirements of section 11-5 of the GST Act will not be satisfied and you are not making a creditable acquisition.

In kind contributions

Paragraphs 37 and 38 of GSTR 2000/11 deal with grants in kind. Paragraph 37 states:

Grants in kind are supplies

37. Where a grant is provided in a form that falls outside the definition of money, such as a grant of property or other goods, the grant itself will be a supply. As grants in kind may be made in return for another supply, there may be a 'supply' by grantor and grantee to each other.

In your case, your are making a supply to entity A when you make the in kind contributions. However, as entity A is not providing consideration for your supply, there are no GST implications in respect of your in kind contributions.

In summary, there are no GST implications in respect of the cash or in kind contributions that you provide to entity A.